I don’t need to tell any of you this, considering that we’re facing some pretty high unemployment numbers, but from a freelancer’s perspective I thought it’d be interesting to go over the facts.
When I told everyone I wanted to freelance (in real life and on this blog), lots of people gave me this sort of reaction:
- Are you serious?
- Have you even SEEN what the economy is like out there?
- But you have a secure job earning good money!
- Are you sure that’s a good idea?
I of course, momentarily had a faltering freak out about whether I was doing the right decision and so I sat down and penned out a couple of notes:
1. I am a consultant anyway, so a lot of my job security is based on a project-by-project basis.
Without a project to go to, consultants are too expensive to keep benched because they need to bill (a.k.a. earn) enough money to cover their own salary, plus the useless employees who don’t do anything at the office but are paid with our billing time.
By the way, I call about 80% of those employees useless because in my line of work, clients call the company without being solicited and request for consultants, so we actually don’t need many people because our skills sell themselves. If the client wants our specific skillset, they ask and they pay for it. We had people sitting around twiddling thumbs for months on end when we were fully utilized.
Anyway, without a project in sight so we can work to pay for our individual salaries, we get fired. Simple as that.
2. I bill at lower-than-corporate rates, but they’re still pretty high.
I used to bill at $200/hour when I was with a corporation or $400,000 a year.
I got paid $65,000/year or around $32.50/hour ($65,000 divided by 2000 working hours in a year).
That means they had a gross profit off me of: $335,000, assuming I have 100% utilization during the year.
Even if I had a 50% utilization, they make $200,000 a year.
Going even further, I’d have to work only 325 hours or 8 weeks to cover my salary. Of course, that doesn’t include all the education they provided, the employee perks or everything else, but just looking at some simple numbers – 8 weeks is 2 months. In 2 months of working, I have paid my salary for the year.
Now that I work for myself, I bill at $120/hour, which if I worked 2000 hours a year, it’s $250,000/year.
I don’t work 2000 hour a year, but assuming I work 3 months a year, I would earn $57,600 which is around the same amount as what my company was paying me, but in a shorter amount of time. Then I just live off the savings (like now), and wait until another contract comes along.
So I work less, but earn the same amount or more and I don’t pay for other people’s salaries.
3. The perks of a job are tempting
You don’t have to worry about your next contract for example. You have health-care, maybe an employee funded retirement plan or other perks that you would not have if you worked for yourself.
I don’t have any of that.
I also don’t have the camaraderie of working with other people doing the same job day in, day out, nor being able to have an easy mentor around the corner, or all the other perks that come with having A job.
4. The company stands behind you
Something that sucks about being a freelancer is you have to be careful (very careful) about what you sign, contracts you are offered, or how expensing works with a client.
In a company, I never had to worry about any of that, and they stand behind me or take the blame elsewhere if something goes wrong.
They told me my per diem (daily amount I could spend on food), and I didn’t have to worry about legalese anything.
As a freelancer, I have to worry about G/L accounts, proper expensing for tax purposes, making sure what my contract doesn’t lock me in for more than 2 weeks or doesn’t give me enough hours a week to be decent money (true story, one client sent someone I knew home and he only grossed about 5 hours a week or less because of his contract).
We need a tie-breaker
So, it looks pretty even. I think I’ve covered the major points of having a job or being a consultant freelancer, and the last one is about job security.
Many people are under the impression that having a job means you have a secure source of income.
To some extent, I agree with that. You know that you’re getting a bi-weekly cheque of $1000 each month, and you are given 2 weeks notice and/or severance pay if they lay you off.
But in all other aspects, you could be replaced at any time.
Anyone, at any level could be replaced at any time. No job is secure, and no company can promise to hire you forever.
That was true in the past, and it isn’t any longer.
Take Steve Jobs for example. Ousted from Apple unceremoniously and had his world was turned upside down. Eventually, he came back but there may have been a chance that he would have just faded into history or got fired again.
No one is under any sort of security. You may have slightly more security or advance notice than most in a corporate job but it’s not for certain.
I am not saying that everyone should become a freelancer (hell no!), but for those of you who can and have been waffling back and forth about the decision because you were afraid for job security, then I say if you have enough cash saved up for a couple of months to go at it, and are willing to work for it then give it a try.
If you don’t, you may regret it for the elusive reason of job security.